European stocks finished the session firmly lower Thursday as trade tensions between the U.S. and China appeared to be experiencing fresh escalation, with Germany’s main benchmark dragged down by concerns about the impact of tariff action. Disappointing earnings updates from Siemens AG and BMW AG added to the downbeat mood, and the Bank of England lifted U.K. borrowing costs, as expected.

How markets are moving

The Stoxx Europe 600 index
SXXP, +0.00%
shed 0.8% to close at 386.64, logging its second consecutive loss. On Wednesday, the pan-European index fell 0.8%, after ending July on a up note.

The euro
EURUSD, +0.0353%
fetched $1.1617, down 0.4% against the U.S. dollar, from $1.1662 late Wednesday in New York.

What’s driving markets

Trade tensions between U.S. and China returned to the fore after President Donald Trump’s administration threatened late Wednesday to raise the proposed tariffs on $200 billion of Chinese goods to 25%, more than double the 10% originally laid out.

Concerns about the possible hit to exporters helped to pressure lower Germany’s main benchmark, the DAX.

The nine-member BOE policy-setting committee all voted in favor of a quarter of a percentage point rate increase, the second hike for the central bank in roughly a decade. In its statement, the BOE said “the near-term outlook has evolved broadly in line with the MPC’s expectations.” The BOE added that recent retrenchments in economic output were temporary and appeared to emphasize that the Monetary Policy Committee led by Gov. Mark Carney may need to do more to prevent the economy from overheating, although it “continues to recognize that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal,” otherwise known as Brexit.

What strategists are saying

“The Monetary Policy Committee (MPC)’s decision to hike interest rates from 0.50% to 0.75% today comes as no great surprise—it had been over 90% priced into markets ahead of the meeting. However, the minutes and Inflation Report lend some support to our view that interest rates will rise by more than markets currently expect over the next few years,” wrote Ruth Gregory, senior U.K. economist at Capital Economics in a Thursday research note immediately after the decision.

“Trade war fears have come back to bite market sentiment, as fears over a new low in U.S.-Chinese trade relations has driven a new bout of selling across global indices. European markets have followed their Asian counterparts lower, and with U.S. futures pointing towards a similarly dour open, there is reason to believe that we will see these trade concerns cloud trading for the rest of the week,” Joshua Mahony, market analyst at IG, said in a note.

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